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28 September 2012

Kremlinology 42: Dependency and the Loan Guarantee #nlpoli

The cost of the Muskrat Falls project has escalated to the point where the provincial government can’t do it without a federal loan guarantee.

Premier Kathy Dunderdale said as much on Wednesday when she finally got around to meeting with reporters two days after her meeting with Prime Minister Stephen Harper.

In her long rambling answer to the first question, she called the loan guarantee “important” at least twice. How far they have come since Danny Williams first started down the entirely political road to build the entirely political project.

"The purpose of the announcement today was to indicate that the Government of Newfoundland and Labrador, and the people of Newfoundland and Labrador, are going to do this project themselves."

"...but the big message here is that we are masters of our own destiny, that Newfoundlanders and Labradorians are in control of this project for the benefit of Newfoundlanders and Labradorians."

“By taking the lead we are in full control of the project, …”

And the loan guarantee was not essential. As Danny Williams said in the House of Assembly on May 8, 2006:

…We never had the fiscal capacity to do it before. There was never a will by a government, I don't think, to do it before…As you do know, the federal government has indicated that they would be providing a guarantee in this particular matter. We are leaving our options open on this. We may look at inviting some equity partners.

And in April 2011, Kathy Dunderdale would insist that the much smaller – but still just as expensive – version of the Lower Churchill project Williams used to excuse is resignation was going to happen. As far as the loan guarantee was concerned, Dunderdale was adamant that “with or without it, Muskrat Falls will proceed.”

Just as expensive. Note that in 2006, the two dams and the lines would cost something between $6.0 and $9.0 billion. By 2010, one dam – the smaller of the two - and the lines would cost as much as the original estimate for the whole project.

Kathy Dunderdale as Premier said almost exactly the same thing to the Board of Trade that she said to reporters four years earlier, in April 2007, when she was natural resources minister:

"One thing you can take to the bank is that we are going to do this project, one way or the other," she said.

"We will do it with federal government help, hopefully, but in any case the project will proceed."

Fast forward to a speech in Labrador, after Williams had announced Muskrat Falls and left politics. Here’s Dunderdale, in February 2011:

"With or without the loan guarantee, Muskrat Falls will proceed," Premier Kathy Dunderdale told a room full of attendees at a premier's luncheon in Happy Valley-Goose Bay Friday afternoon.

Derrick Sturge, an executive with Newfoundland's Crown-owned utility Nalcor Energy, said while the loan guarantee would help with project costs, it's not a make-or-break proposition.

“A federal guarantee would bring value to our customers ... but I think the key message is we're proceeding with or without,'' said Sturge.

Or a month later, Moira Baird quoted no less an authority than Nalcor chief executive Ed Martin:

"A loan guarantee would be helpful. A loan guarantee is not necessary," Martin told reporters during a technical briefing Monday.

Martin told the Telegram he hoped to have the loan guarantee nailed down by the end of 2011. Yet, here we are, headed into the last quarter of 2012, and the federal and provincial governments are still talking about the loan guarantee’s details.

And the loan guarantee has gone from being something that would be helpful to something that is “important.”

Maybe a bit more than that.

Listen to Kathy Dunderdale at her scrum.

The loan guarantee is evidently much more than important. it is headed for crucial.

From Dunderdale’s scrum, the two governments must finish the details of an agreement in a matter of days or weeks if the provincial government is to approve construction of the project by the end of October. As the Telegram summarized it:

She said in order to finalize the loan guarantee they first need final project cost estimates — so-called “Decision Gate 3” numbers — which Ottawa wants to see before they nail things down.

Once the loan guarantee is finalized, those terms will be provided to Manitoba Hydro International (MHI), an independent contractor which is doing an analysis on the final decision gate three numbers.

“That information that’s needed to inform MHI’s final report so that we all know what we’re talking about,” Dunderdale said.

So it is that a provincial government once dependent on the federal government for half its annual revenue is now entirely dependent on the federal government once again for a project that was supposed to be done with the people of Newfoundland and Labrador in undisputed control.

A provincial government that supposedly had the fiscal capacity to build the Lower Churchill on its own cannot go anywhere without Ottawa’s money.